Governance Performance of Supervisory Authorities - Spain

This question is different from governance of banks. It is governance of the governors.

Who supervises the supervisors? How do we know if Banco de España, CNMV, ECB are doing a good job? And what happens when they fail?

Spain is the perfect laboratory for this, because it had the worst supervisory failure in Europe (2008-2012 Cajas crisis), then the most radical reform (Banking Union), then the most litigated resolution (Banco Popular 2017).

1. Who Are the Supervisory Authorities in Spain?

Spain follows a traditional sectoral model - 3 supervisors + 1 resolution authority + EU layer:

Key Point: Since 15 Oct 2013, Banco de España is no longer sovereign for big banks. It is a National Competent Authority (NCA) under ECB. ECB has exclusive competence for prudential supervision of Significant Banks.

The Governing Council of Banco de España: Governor, Deputy Governor, 6 members appointed for 6 years (renewable once), General Secretary of Treasury, and Vice-Chair of CNMV - to ensure coordination.

2. What is "Governance Performance" for a Supervisor?

For a bank, performance = profit, NPA, capital.
For a supervisor, performance is measured by 5 criteria (IMF FSAP + Basel Core Principles):

1. Independence: Can supervisor say NO to Government and to big banks? Governor has 6-year term, cannot be removed by Govt except for cause. Law 13/1994 guarantees autonomy.

2. Accountability: To whom? Banco de España reports to Parliament (Congress), publishes Annual Supervision Report, subject to Tribunal de Cuentas (Court of Auditors). ECB reports to European Parliament. CNMV reports to Parliament.

3. Transparency: Does it publish stress test results, sanctions, inspection reports? Banco de España publishes FLESB aggregate results, CNMV publishes warning lists, sanctions.

4. Effectiveness: Did it prevent failures? Did it detect risk early? This is where Spain failed 2008-2012 and improved after 2014.

5. Coordination: Do BdE, CNMV, DGSFP, ECB, SRB share information? IMF FSAP 2024 said: "CNMV's effective cooperation with BdE could be further strengthened by formalizing current arrangements" - still a gap.

6. Liability: Can supervisor be sued if it fails? This is the most contested point.

3. The Performance History - 3 Phases

Phase 1: Failure (2008-2012) - The Cajas Disaster

Spain had 45 Cajas (savings banks) controlled by politicians, unions, Church. Banco de España supervised them, but did not stop:

• Real estate lending bubble - 60% of loans to construction
• Political boards lending to political projects
• Bankia formed from 7 Cajas, IPO in 2011 with false profits

Result: Bankia needed €19B bailout in 2012, Spain needed €41B EU bailout for banks. IMF and EU said Banco de España supervision was forbearing, politicised, and too close to supervised entities.

This is why Banking Union was created.

Phase 2: Reform (2014-2020) - Banking Union + New Governance

• ECB takes over Significant Banks
• Banco de España focuses on Less Significant + Conduct + Macroprudential
• CNMV gets stronger enforcement powers under Law 6/2023
• FROB created as independent resolution authority
• New fit-and-proper tests for bank directors - BdE must approve every director

Performance Improved: Spanish banks passed EBA stress tests 2018, 2021, 2023. NPA fell from 13% (2013) to 2.5% (2024). No bank failure 2014-2017 except Popular.

Phase 3: Test (2017-Present) - Banco Popular & New Risks

Popular showed supervision still has limits: ECB declared it Failing or Likely to Fail on 6 June 2017, SRB resolved it overnight. Courts upheld it, but questioned whether supervision should have acted earlier.

Now new test: DORA, MiCA, AI Act - Can BdE + CNMV supervise tech risk as well as credit risk?

4. Landmark Case Laws - Supervisory Performance & Liability

CASE 1: Bankia IPO - Criminal Investigation of Supervisors (2017) - The Precedent That Shook Spain

Facts: After Bankia collapse, Audiencia Nacional (National Court) called to testify 6 current and former directors of Banco de España and CNMV, including former Governor Miguel Ángel Fernández Ordóñez and former CNMV President Julio Segura.

Allegation: Supervisors knew Bankia prospectus had "serious inaccuracies" but allowed IPO.

Outcome: No supervisor was convicted. Supreme Court held Bankia itself must compensate investors, not supervisors. But the fact that Spain charged its central bankers in court set a massive precedent in Europe - no other country had done this.

Governance Lesson: Supervisors have de facto political accountability even if they have legal immunity. The investigation forced Banco de España to publish its internal supervision reports and reform its governance.

CASE 2: Banco Popular Resolution - General Court 1 June 2022 (T-481/17, T-510/17, T-523/17, T-570/17, T-628/17) + CJEU C-551/22 P (2024)

Facts: ∼100 cases filed by shareholders/creditors claiming ECB, SRB, Banco de España acted unlawfully, valuation was wrong, no right to be heard.

General Court 2022: Dismissed annulment actions in entirety. SRB acted lawfully, Deloitte provisional valuation was sufficient given urgency, no right to be heard before resolution because it would cause bank run.

CJEU Grand Chamber 18 June 2024 (C-551/22 P Commission v SRB): Confirmed ECB as supervisor and SRB as resolution authority should be able to assess FOLTF quickly, without full due process.

Also: Case T-330/20 (22 Nov 2023) Del Valle Ruíz v SRB - SRB refusing compensation - Court held no compensation if shareholders would have got zero in liquidation. Valuation of difference in treatment was independent.

Governance Lesson: Courts give wide discretion to supervisors in crisis. Performance is judged by outcome (did resolution prevent systemic crisis?) not by procedure (did you give hearing?). This is the "supervisory discretion" doctrine.

CASE 3: Supreme Court Judgment No. 1315/2026 of 24 July 2026 - Banco Popular Bonds

Facts: Cooperative bought 42 Banco Popular bonds in Oct 2015, lost money after resolution. Sued its own board for buying bonds of a bank supervised by Banco de España.

Supreme Court Held: Investment was guaranteed by a financial institution supervised by Bank of Spain, and there is no evidence in Oct 2015 that Popular was failing. Board's decision was protected by Business Judgment Rule.

Governance Lesson: Supervision creates legitimate trust. Investors can rely on the fact that a bank is supervised. If supervisor says bank is solvent, investors are not negligent for trusting it. This increases supervisor's moral responsibility, even if not legal liability.

CASE 4: Landeskreditbank Baden-Württemberg v. ECB (CJEU C-450/17, 2019) - Scope of ECB Power in Spain

German bank challenged ECB's exclusive competence to supervise it as Significant Institution, arguing national supervisor should do it.

CJEU Held: ECB is exclusively competent for prudential supervision of Significant Banks. NCAs like Banco de España act as ECB's agents, not independent supervisors.

Application to Spain: For Santander, BBVA, CaixaBank - Banco de España's performance is judged by ECB, not by Spanish Parliament. This is a governance shift - accountability moved from Madrid to Frankfurt.

CASE 5: CNMV v. X (Twitter) - €5M Fine (2025) - CNMV Performance in Tech

CNMV fined X for running Quantum AI crypto ads without checks.

Performance Lesson: CNMV showed it can enforce against Big Tech, not just Spanish firms. This was praised by ESMA as example of effective supervision. But critics said CNMV acted late - Quantum AI had run for 2 years.

CASE 6: Trasta Komercbanka v. ECB (CJEU C-663/17) - Licence Withdrawal

Latvian bank challenged ECB withdrawal of licence. CJEU held ECB can withdraw licence based on AML failures, even if national supervisor (like Banco de España) disagrees.

Lesson for Spain: ECB can override Banco de España on AML, governance, fit-and-proper.

5. Can You Sue a Supervisor in Spain?

This is the key governance question.

General Rule: Supervisors have limited liability.

• Banco de España: Under Law 13/1994, it is liable only for gross negligence in supervision, not for simple error. Claim must be filed via administrative liability (responsabilidad patrimonial) against State, not against individual supervisor. Must prove supervisor knew of fraud and did nothing.
• ECB: Under Art 340 TFEU, ECB has non-contractual liability, but CJEU requires proof of sufficiently serious breach of duty. Very high bar. No ECB supervisor has been held liable for bank failure in CJEU history.
• CNMV: Similar - liability only for gross negligence, not for failure to detect fraud that was hidden.

Why? If supervisors were liable for every bank failure, they would become ultra-conservative, stop lending, and no one would want to be supervisor. This is called "supervisory forbearance vs supervisory liability" trade-off.

But: Bankia case shows political accountability is real, even if legal liability is limited.

6. IMF FSAP 2024 Assessment - How Did Spain Perform?

IMF Financial Sector Assessment Program (Aug 2024) for Spain:

Strengths:

• Banking Union improved supervision quality
• Banco de España macroprudential framework strong
• CNMV enforcement improved, especially on MiCA and advertising

Weaknesses:

• Coordination between BdE and CNMV on market infrastructures (BME Clearing, Iberclear) needs formalization
• DGSFP (insurance) is still part of Ministry, not independent like BdE/CNMV - governance gap
• Supervision of Fintech / Crypto still fragmented
• Climate risk supervision still developing

Summary - The Spanish Supervisory Paradox

Supervisors in Spain are powerful but not liable, independent but not fully accountable, European but still national.

Performance is judged not by courts, but by:

1. Did you prevent systemic crisis? (Popular = Yes, Bankia = No)
2. Did you act early? (ECB stress tests = Yes)
3. Did you coordinate? (BdE + CNMV = Still weak, per IMF)
4. Did you adapt to new risks? (DORA, MiCA, AI - In progress)